Q.Classify the following expenses as Capital or Revenue.

Expenditure on the trial run of a newly installed machine is incurred to make the asset ready for use, so it is capital expenditure (added to the machine's cost). The correct answer is option (a).

In the Tamil Nadu HSC Class-11 Accountancy syllabus, capital expenditure includes not only the purchase price of a fixed asset but also every cost incurred to bring it into working condition — freight, installation, and trial-run/test-run expenses.

A trial run is done to test the newly installed machinery before regular production begins. Since it is a one-time cost needed to make the asset usable, its benefit lasts beyond the current year, so:

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Expenditure on the trial run of newly installed machinery is capital expenditure (added to the machinery's cost), so the answer is (a).

In the Tamil Nadu HSC Class-11 Accountancy syllabus, capital expenditure is spending that either acquires a fixed asset or brings an existing asset into a usable/working condition, giving a benefit that lasts beyond the current accounting year.

A trial run of newly installed machinery is a necessary step to make the machine ready for regular production. Any cost incurred to install, test and make the asset operational is part of the asset's acquisition cost and is therefore capitalised — added to the value of the machinery, not charged as an expense of the year.

Checking the options:

• (a) Capital expenditure — correct; the ₹20,000 is added to the cost of the machine. …